Forecasting beyond Furlough

Whilst it does not much feel like it right now, we are as a society on the brink of returning to ‘normal’ and that means the government is starting to reduce the amount of financial support available to businesses.

What changes are coming?

From 1st July, employers will only be able to claim 70% of their employees wages up to a cap of £2187.50. From 1st August, this figure will reduce further to 60% and £1875.00 respectively.

From 1st October, the figure will reduce to zero – zip, nada, nothing.

What will this mean for my business?

To qualify for the grant, employers must agree to top up wages so that their employees on furlough continue to receive 80% of their normal pay.

So, if your employee has been receiving the maximum furlough grant of £2’500 so far, you will need to find £312.50 to top up their wages in July and £625 in August and September.

As has been the case since August 2020, employers must also continue to pay the relevant tax, NI and pension contributions due.

Consideration must also be given to holiday pay during this period. If an employee takes a period of annual leave whilst on furlough, the employer must pay them their contracted holiday pay rate, which may be more than they receive on furlough. The employer must make up the difference.

As it stands, the biggest shock for employers will come in October when the option to furlough employees will be lost so the remaining options are to pay the employee contracted wages or make them redundant.

Considerations for retaining employees

In reality, it is highly unlikely employees will go from 100% furlough to 100% engaged on 1st October. It is most likely that employees are or will shortly be on flexible furlough which will have its own implications for the cash demands on the employer.

The opportunities for increasing turnover and so being able to retain employees varies dramatically by industry given the varying implications of the pandemic with entertainment venues remaining closed for at least another 4 weeks but construction seeing an increase in demand.

Considerations for making employees redundant.

For some, it simply will not be possible to retain employees when the support of furlough is taken away. Employers will need to consider the costs of redundancy as failure to comply with relevant legislation can have financial and reputational implications.

It is also worth noting that since 1st December 2020, the CJRS scheme was amended so that employers cannot claim for wages during a notice period for employees they are making redundant. So, whilst redundancy may ease the financial demands on your business in the long term, in the short term you will have to find the funds to cover 100% of normal pay during the notice period and any applicable redundancy payments.

What do I need to be doing right now?

There is no denying the next few months are going to be incredibly hard for everyone. Many companies and individuals are depleted of resources as they have battled to keep their heads above water for the last 15 months. The potential increase in financial demands combined with the ongoing uncertainty around market recovery, and the impact of non-Covid related changes like Brexit, can make it feel more than a little overwhelming for business owners.

Never has the phrase ‘Forewarned is Forearmed’ been more relevant.

How can I be prepared?

By creating a picture of what could be coming, directors can prepare for the challenges they will inevitably face in the next few months. This forecast is unlikely to lessen the impact but will certainly provide opportunity to assess the size and nature of the challenges and consider what options are available.

In it’s simplest form a cashflow forecast shows how much cash you will have in the bank at any time by considering balance brought forward, money received and items paid.

It can also take account of timings – for example whilst a VAT liability is updated on a daily basis the amount does not crystalise, become due, for 1 month and 7 days after the end of the relevant VAT quarter.

At Nurture we always aim to keep things as simple as possible as we believe this is the way to provide the most value to our clients. However, depending on the complexity of the business, cashflow forecasts can be quite tricky to produce and must be done correctly and accurately to be of any value.

In many cases an excel spreadsheet will be sufficient to produce the information needed but without the right levels of protection and the ability to update information as necessary, it will quickly become at best inaccurate or at worst wrong and could provide misleading information to management.

Engaging your accountant to produce this crucial financial management resource can have a number of advantages – an experienced, external view to ensure accuracy, ability to use the latest technology and apps to ensure efficiency and the expertise needed to translate the numbers into actions and minimise the negative impacts on you and your company.

If you think a cashflow forecast could be the think that would help you sleep better in the coming months, please get in touch. We’d love to help.